By Dharmesh Shah
The equity benchmarks snapped a three-week winning streak and closed lower by 1.1% amid muted global cues last week. Broader markets relatively outperformed as the Nifty Midcap index gained 0.5%. Sectorally, beaten-down mid-small cap stocks staged a recovery last week with outperformance from Pharma, chemicals and BFSI.
Our positive view is validated by the following observations:
For the first time since December 2022, the index posted a faster recovery of the last declining segment. Nifty recovered 15 session decline (17800-16800) in just nine sessions indicating structural improvement.Ratio of stocks at 52-week highs vs 52-week lows has improved significantly over the past two weeks which is a sign of improved market sentiment. From the early April reading of 1:1, the ratio is currently at 4:1 with a new set of stocks from Pharma.FII inflows have been supportive of the US dollar in a declining trend. In April, FIIs turned net buyers, one of the highest in the EM basket.
We expect broader markets to witness catch-up activity in a gradual manner as Nifty midcap and small-cap indices have resolved out of a four-month falling channel indicating the end of the corrective phase.Structurally, the slower pace of retracement makes us confident to revise the support base at 17500 as it is a 38.2% retracement of the three-week rally (16828-17863) coincided with rising 200-day ema (17530).
Bank Nifty Outlook
The Bank Nifty traded in a narrow range and closed the week on a flat note at 42118 levels down marginally by 0.1% amid muted global cues. PSU banking stocks relatively outperformed as the PSU bank index closed the week with a gain of 2%. The weekly price action formed a bear candle with a long lower shadow signalling consolidation amid stock-specific action after a strong up move of more than 8% in the preceding three weeks.
The Index has witnessed a breather in the last five sessions after an up move of more than 3200 points in the preceding three weeks. Going ahead, we expect the index to extend the current consolidation amid stock-specific action. We believe the current breather will make the trend healthy and dips should be used as a buying opportunity for a gradual up move towards 43000 levels in the coming weeks being the 80% retracement of the entire decline (44151-38613). Support for the Bank Nifty is placed at 41200 levels.
Key point to highlight is that the index has recently for the first time since December 2022 posted a faster retracement of the last major declining segment i.e. seven weeks decline (42015-38613) retraced in just three weeks signalling a sign of turnaround on a larger degree.
Bank Nifty continues to outperform the Nifty. The Bank Nifty/Nifty ratio line continues to trend higher and sustains above the major breakout area signalling an extended period of outperformance.
The index has support at 41200 levels being the confluence of the 38.2% retracement of the current up move (38613-42603) and the rising demand line joining the recent lows of the last four weeks placed at 41200 levels.
(Dharmesh Shah – Head Technical, ICICI Securities. Views expressed are author’s own.)